Purchased for $550,000 in June of 2004, this Outer Sunset single-family home was flipped eight and one-half months later for $680,000 (an increase of $130,000/23.6%) and established a new neighborhood comparable sale (“comp”) that we can’t recall being dismissed on account of the short holding period or location.
Bought back by the bank this past September for $535,075 this past September, 3004 Ortega is currently listed for $589,900.
∙ Listing: 3004 Ortega (2/1) – $589,900 [MLS]
Another example of one of my “heroes”. The 2005 purchasers bought with no money down, didn’t pay any taxes at least last year (according to the SF tax assessor’s website) and probably for some time previously, and no doubt skipped their mortgage payments for a while.
Now the bank gets to eat the loss, but they were pretty smart too. They were always able to count on the ignorance and foolishness of the public and so the taxpayer gets to eat the losses, while the execs of the banks get to keep every dime of the phony “profits” from the whole period. I read recently that the 5 large investment banks alone paid out over $313 BILLION in cash compensation over the period 2002-07 (while their stocks of course mostly went to zero). What a great ponzi scheme it was!
Just a personal note – the holder of the original loans here at 3004 Ortega was New Century. When New Century blew up in February/March 2007, that was the clear signal to me to start geting out of US equities (having enjoyed the 70-100% runup since Fall 2002). I really owe a debt of thanks to the fraudsters in the US government and its regulated banks for giving us such clear signals as to what was coming.
LMRiM,
What are your price reduction predictions for the Sunset and West Portal?
Sunny Jim,
Obviously there’s going to be variation based on the specific location/property type, but I’d expect 50% off from peak for the Sunset, on average. I’d guess that within 2 years, sub-$400K for reasonably nice, smallish houses will be very commonplace out there.
West Portal I think has better prospects, because it seems to have undergone a more durable change for the better. Still, I think 35-45% off peak makes sense there, again depending on specific location/property type.
I have two anecdotes about West Portal. We have very good friends in Forest Hill Extension (technically) but it’s really West Portal. We went skiing with them last March, and based on my doom and gloom forecast they got completely out of their stock investments at around 12.5K on the Dow. At the time they insisted that their house (which they purchased in 97 for about $500K and spent around $100K updating) would never go below around $1M, and they thought it was worth around $1.25M then (which I think was pretty accurate). They are refinancing now, and the two appraisals just came back – $960K today. They now think that the house could go down as low as $600K – in fact, that’s what the wife (who is a CFA) thinks its “fair value” is. Perceptions are changing.
We have another couple that we are friends with who live in a very nice row house on Ulloa around 14-17th Ave (obviously I don’t want to get too specific). They paid more than $1.1M for it 2004/05 period, and spent a good amount remodelling it. They’re having school issues because of the goo goos that run the system, and think they want to move to Tiburon. The wife the other day: “It stinks. Our choices are to sell and lose a ton of money, or try to stick it out and fight with the public school system.” Well, maybe they can convert to Catholicism (they’re Protestant) and send them to St. Cecilia (technically, non-Catholics can get in, but it is getting tougher as more people realize what a scam the SF public school system is).
Happy New Year!
LMRiM – do you see Noe in a similar light as West Portal(35-45% off peak?)
West Portal, or specifically Inner Parkside, has surprisingly seen quite a few high 7’s to mid 8’s sales for deferred maintenance houses or light fixers in the last month or so. If there’s a paradigm shift for that particular market visible over there, I do not see it from late October through December figures. That’s how much they cost in ’05, ’06, etc.
LMRiM,
Tell them to convert, or better yet just baptize the kid Catholic. The commissions on the sale alone would pay for all 9 years. Plus they could walk, they are right there. What’s the value of that?
LMRiM – do you see Noe in a similar light as West Portal(35-45% off peak?)
I’m not as familiar with NV as with WP and Sunset (I lived in Monterey Heights for 6 years), but my gut tells me that NV will be hit pretty hard. You just don’t get the sort of “sentiment extreme” that NV underwent duringthe bubble without a tremendous giveback. 40% decline on average, apples to apples, seems like a reasonable central forecast *from peak, of course). I would guess that the bulk of this decline should take place by 3Q 2010 (clearly the area is declining now), but government meddling could either accelerate or delay the timing.
If there’s a paradigm shift for that particular market visible over there, I do not see it from late October through December figures.
Clearly, I’m talking about forecasts, not what is happening right now. Still, it’s hard to accept that declines aren’t going on out there on most property types/locations already. Our friends mentioned above both think their homes have gone down 20%+ over the past year. For one of them (the ones that bought in 1997) they’re taking it in stride. They are actually planning to rent a place in Tiburon/Mill Valley next year when their kids start 1st grade (and buy a fixer in 2-3 years up here – that is their current plan, and retain their Forest Hills Extension Home as a rental (their nice low prop 13 taxes make it economical at the projected $3-3.5K/mo rent they expect to get). For the other couple, they’re freaking out a bit, but they are trapped (large downpayment).
I don’t think an argument supporting 20 percent shifts in West Portal over the last year can be supported. We’re only talking since late September anyway.
Haven’t looked into Forest Hill Extension in a while. 85 Vazquez might be interesting to look at. They’re pending after a at ~1.2M, after 50K reduction. They had tried to sell last year for $1.395M. (The area has never really gotten that expensive in $psqft terms, not compared to many other parts of town.)
I suppose that we are to take your word at face value that the appraisal came in this morning and they got right on the phone with you, and immediately shared worst case scenarios. Forget for a moment that appraisers are under a lot of scrutiny right now, and are errring on the side of caution so that they don’t get blacklisted. (The 960K is probably therefore toward the low end.) But fine, I’ll play along.
Hard to put a future value on any house these days, let alone your friend’s house without seeing it. That said, 600K for even a medium size Forest Hill Extension house? A remodelled one? Every gain of the last 11 years would have to be given back, and inflation couldn’t factor in order for that to be the reality. It sounds to me as if they’ll be all right regardless of what they decide.
I disagree that Forest Hill Extension is the same as West Portal. First of all, the homes are further from the Muni station and tend to be smaller than WP homes. There has been a significant price difference between FH Ext homes and WP prices over the past several years, so I disagree that they are the same.
Also, WP prices have held up well when compared to the Sunset and neighborhoods south of it, such as Ingleside Terrace. Most sale prices indicate a drop of about 6-7% off the per sq. foot median.
I disagree that Forest Hill Extension is the same as West Portal.
No question that is true for most of the area. However, the couple that I spoke of are near Ulloa northeast of Claremont. It is closer to the muni than most of WP proper is. It’s also fairly large; certainly comparable to most of the attached and row housing that constitutes much of WP. You’re probably thinking of the large houses in and around Wawona and 15th, up to Ulloa, but I think of WP as most of the neighborhood west of WP avenue up to 19th (at least up to St Cecilia), and most of that consists of pretty smallish attached houses (but nice stuff, by and large). Some of FHE is nicer than just about anything in WP. As with things in SF, it really is pretty micro 🙂
The bank buys it back at $535,075, and is trying to sell it for $589,900. Anybody out there stupid enough to pay $589,900 for it when you know the bank would probably settle for $545,000? If you are, enjoy wasting your money.
You see, banks buy back properties WHEN THERE ARE NO BUYERS. So enjoy, everybody – it’s your turn to lowball the banks and twist the knife in their side. Payback is a real *ahem*.
I am so loving this downturn and seeing smug realtors and loan agents actually have to work for a living. For once.
Gregg,
Right. I would love it if a client of mine wanted this one. Come in at a further 15% less or what have you. I doubt that would fly right now tho. If I were to guess, I’d say this one will go for mid 5’s, minimum. And it’s in the boonies, smallish, etc.
This part of town is holding up *very* well. I wouldn’t be surprised to see multiple bidders on this beauty.
LMRiM,
You sound like a master of market psychology and valuation. What do you think of oil? My opinion is that demand has nothing to do with current market valuation and is largely a bunch of guys in front of a computer monitor pushing sell.
Daily consumption is 85 million barrels a day, a slowing world economy lowers it to 83 million barrels a day. In order to keep up with demand / consumption oil companies must discover approximately 6 billion barrels per year.
This does not correlate to $140 / barrel to $40 / barrel.
In the end I think every can relate because inside their gut I would say most people do not think gas prices will stay this low forever.
Oh yeah, this wierd game used to happen in the sunset / richmond where listing agents price low, but have no intentions of selling at that price.
Paul
Paul,
Oil consumption can never exceed oil production. In a free market the price will fluctuate to whatever value is needed to balance supply and demand.
The credit expansion increased real economic activity and thus oil consumption beyond the rate that existing infrastructure could supply. This lead to a real rise in oil prices which was then exacerbated by a speculative bubble.
The credit implosion has fed through to the real economy and reduced oil consumption enough to bring it below the world’s pumping capacity as well as shutting down much of the speculative fervor and so we have seen price fall.
As geological constraints on the flow rate begin to bite the amount of oil available to be consumed every day will begin to fall. The reduction in oil consumption can be achieved in either a deflationary or inflationary manner depending on macro economic policy. The only thing that is certain is that economic activity that depends on oil consumption will either be curtailed or will have to switch to alternative forms of energy.
A couple of hours spent with wikipedia and a calculator will allow anyone to see just how much of our economy is dependent on oil consumption (and other finite fossil fuels) and how likely various sources of alternative energy are to plug the gap in our energy demand as we go forward.
Is it not true:
1) As the world becomes more industrialized and the popultaion increases oil consumption will increase.
2) The world consumes 85 million barrels a day, during economic downturns it dips 2 million barrels per day.
3) There is a finite number of barrels in the ground, and those barrels are becoming increasingly hard to find.
The reduction in oil consumtion (85 million to 83 million per day) does not equate to a move of $140 to $40. If it did would we not see 70% less cars on the road? $140 was probably speculative, but given the finite nature of commodities, and the difficulties of replacing oil as an energy source isn’t it logically to assume most of the run down in oil is psychologial?
I just want to know if this is a true statement:
If I buy a barrel of oil today (i.e. USO) it will be worth more 10 years from now.
Thanks,
Paul
The consumption level of 85 million BPD did not equate with $140 per barrel oil either…
The run-up of the price of oil to $140 was also psychological- fear based speculation…the pendulum swings both ways…
The current Global economic downturn has dampened demand by more than 2 million barrels (see OPEC…)
The price (IMHO) will swing back to a more moderate $55-75 range barring any shocks…
A great resource/blog on Oil and Energy is The Oil Drum:
http://www.theoildrum.com
“If I buy a barrel of oil today (i.e. USO) it will be worth more 10 years from now.”
Paul, what is the point of this question? Correct me if I’m wrong, but what I think you’re saying is that “certainly anyone who buys SF real estate will see gains 10 years from now.” Don’t be so sure. (If I have your premise wrong, just say so, and you can ignore the remainder of this post — but then look at dozens of local realtor web sites where they promise that anyone with a 5-year hold “should do fine”).
Take a look at 1080 Bowdoin St. in Portola — just listed. Bought in 2000 for $325k. Sold in 2005 for $625k. Looks like the bank took it back in July ’08 for $346k. Now listed at $389k. So one could reasonably surmise that this place will sell pretty close to the 2000 price (at $516/sf, I wouldn’t be surprised if it goes for less). If the guy who bought in 2005 held on to it, it is almost certain it would be worth less than the selling price 10 years after purchase.
I know, one can discount this place because it is not in “Real SF.” But there are loads of places like this, and the point remains that it is far from certain that a 2009 buyer in SF will see appreciation even with a 10 year holding period. We could see prices drop 40% (or more) over the next couple years and stay flat for several more. Buying now is incredibly risky even with a long projected holding period (and who knows what curveballs life might throw at you to disrupt any such plan — job loss, divorce, illness, job move, etc.).
trip,
I’m thinking of investing in some oil, that’s all. My impression is that it is just a psycholgical swwing to $40 / barrel. The underlieing demand didn’t make any sense to me, and was just looking for some help.
There seems to be some financial wizards here and I just wanted their opinion. I don’t know too much about commodities.
Just doing some homework, no “evil realtor” agendas.
Paul
Also, does anyone have a good grasp on USO? Yeah I know that buy texas sweet ftures one month out, but what are the downsides?
Carter,
Thanks for the info and referral to http://www.theoildrum.com. very useful.
Paul
Paul,
I don’t think there is too much value in trying to figure out and project the supply/demand fundamentals of oil. Too much obfuscation (do you trust the Middle East and Russia that they are accurately reporting reserves/production/extraction curves – even if they could figure it all out themselves?) Too much endogeneity in the system (low oil prices = massive cheating by the OPEC cartel, but lower investment ex-OPEC, etc. — high prices, just the opposite dynamic).
I’d concentrate on the demand side only, and although I posted a few weeks ago that I have started trading oil from the long side, I’ve taken my profits since and am just sitting back now. I am not bullish right now for anything other than short term trades, because the world economy still has a huge adjustment coming.
Just my opinion, but if you are a “buy and hold” type I would only have small energy positions at these levels, and perhaps look to increase exposure as we get towards the latter part of 2009. A lot will depend on what US equities do, and I think there is more downside there (after the current bear rally ends). Oil will be more correlated with equities I think than with the monetary reflation efforts themselves – IOW, oil is not a great inflation hedge in this environment. Too much debt in the system, which will lead to demand destruction if price inflation takes hold and interest rates rise.
If you are looking for tax savings, however, it may well make sense to explore the oil and gas partnership structures now. Ask your financial adviser (obviosuly I don’t want to give specific advice even anonymously on particular structures), but conceptually these are a pretty good bet at these oil and oil company price levels (especially after taking into account the tax credits).
Thanks LMRiM,
I have another question regarding Natural Gas and Oil.
Seems like it is a constant 6 X Price, occasionally it get out of whack but goes back.
Is this true and why? If it is, isn’t there an arbitrage opportunity?
I am a valuation, buy and hold, sell on psychological exuberence type.
My financial advisors seem only to regurgertate what the main guy says.
@Paul
I echo what LMRiM said. Oil’s probably not the greatest investment right now. However, why not consider investing in SF real estate? Since you’re a “buy-and-hold” guy, SF property sounds like a great way for you to go. After all, in 5-10 years, SF will almost certainly be way way up.
I do buy 1 or 2 properties a year, and am probably too heavilly weighted in that asset class, as I really don’t own any equities, just bonds and cash.
I’m a real estate guy, just curious about oil.
Fair enough. Just seems to me that continuing to add to your RE portfolio at these low levels would really pay dividends down the road.
After all, paco showed how the S&P has lagged SF RE for the last 9 years, and that means it’s likely it will do so for the next 9 too. Plus, you get 3% instant equity because of your RE license!
I’m getting ready to do just that. I’ve been doing it since 1986, and there will be no change of plan for 2009.
As a real estate guy, if you can handle 1991-1997, really this doesn’t seem as bad. Of coarse, I am in a different position now and have more resources and experience.
Couldn’t agree more. And by putting your money where your mouth is (talking the book as these ex-trader bears like to say), you ensure that you will continue to impress clients with your acumen. Plus, like you say, with greater resources and experience, you’ll bring in outsized returns in the next few years when SF RE soars again.
I only wish I had listened when people told me to buy now or be priced out forever. It’s too late for me now, although maybe my cautionary tale can have some impact for the younger generation.
Scene 1, a typical evening at the foolios rental home in the “real san francisco” ™
Foolio, at the dinner table: Honey, will you please pass the salt, NOT!
Mrs Foolio: Heres’s the shaker. Take the salt shaker now or be salt shakeless forever.
Foolio: Thanks honey! NOT!!
Ha ha…c’mon, fluj. Even you have to admit it’s pretty funny stuff. Foolio seems to be running the boards here today. By my tally, the only things he’s overlooked are the rich foreign investors, and that SF is still cheaper than Moscow.
Oh, I agree. Like I said in another thread, this one
“I disagree. SF has *already* weathered the storm, while inferior cities like Miami, Phoenix, Bayview, and the Sunset have all gone underwater.”
was pretty awesome.
One wee comment about oil : $2/gallon is a bargain. Break out all of your mason jars and tupperware and fill them up. Even with deflation that price won’t hold for long.
I’m not much of a conspiracy theorist but I think that there has been a little manipulation in the energy markets over the past year. Maybe rising gas prices will be used as a tool to thwart any move that the Obama administration makes towards funding alternative energy and/or demand reduction.
And isn’t it odd that the same gallon of gas sells for $2-4 in SF, $9 in Paris, and 80 cents in Jakarta ?
Yo Milkshake,
That’s exactly what I am saying!!!!!!!!!!!!!!!
Although I have no expertise in comoddities, my gut, I think everyone’s gut says there is no way gas can be $1.75 / gal for any extended period of time.
Not quite the same as a barrel of oil, but it is highly correlated!
So my question is if I buy a barrel of oil today isn’t it highly probable that barrel of oil will be worth more (inflation adjusted) 10 years from now?
Milkshake:
Rising gas prices are actually an incentive to public and private investors to focus on alternative energy…The higher the price, the more attractive investments in alternatives become. They (higher prices) wouldn’t be used to “thwart” any initiative Obama had but instead be incentive and leverage for funding.
The biggest risk of the current prices is a backing off of the almost hysteria like atmosphere surrounding the heady days of $140+ Oil…what seemed so very urgent not 6 months ago is suddenly not as dire (to some).
But I agree the current price is a bargain…and one would expect oil prices to rise over time…as economies pick up and demand increase…
…and yet there are always variables and unseen events…technology, either new detection and sourcing, or an alternative rendering oil less in demand.
…or even continued demand destruction such that it takes 10 years to rebuild…I do not think that will happen but no one knows for sure and the World is not in the bottom of the cycle yet…unfortunately.
Also- its fun to compare but the gas in the locales mentioned most assuredly is not the “same” gallon of gas. There are numerous differences, from type of oil refined/quality to additives and refining processes, to transportation costs, to regulation, taxes etc…
Clearly the folks in Jakarta are getting a great deal on gas courtesy of their government.
Thomas – What I meant was that rising fuel prices could be blamed on federal polices that affect the cost of the raw materials. If the new government decides to take a bold stance anywhere : alternatives, demand reduction, the middle east, whatever and following that the prices at the pump rise the population is going to cry. If 2 years from now the spinmasters can portray a story of how we need another governmental change there are enough voters who might be swayed by the thought of seeing $2/gallon again.
I’ve seen how powerful the desire to have cheap and easy access to automobile transportation can distort local planning decisions so many times on a local level. Any change that threatens convenient parking faces an uphill battle.
This surely scales to the state and national level. A lot of people are terribly scared at the thought that they might need to pay more at the pump or not be able to park right in front of every destination they need to reach.
The petroligarchy would like to keep us addicted as much as possible. They know that their source of wealth will run out and want to extract maximum cash. People who are desperate (or think that they are) will pay top dollar.
Carter – What I meant was that rising fuel prices could be blamed on federal polices that affect the cost of the raw materials. If the new government decides to take a bold stance anywhere : alternatives, demand reduction, the middle east, whatever and following that the prices at the pump rise the population is going to cry. If 2 years from now the spinmasters can portray a story of how we need another governmental change there are enough voters who might be swayed by the thought of seeing $2/gallon again. Though the dems control congress it is by a slim margin.
I’ve seen how powerful the desire to have cheap and easy access to automobile transportation can distort local planning decisions so many times on a local level. Any change that threatens convenient parking faces an uphill battle.
This surely scales to the state and national level. A lot of people are terribly scared at the thought that they might need to pay more at the pump or not be able to park right in front of every destination they need to reach.
The petroligarchy would like to keep us addicted as much as possible. They know that their source of wealth will run out and want to extract maximum cash. People who are desperate (or think that they are) will pay top dollar. They will also vote in anyone who promises to reduce the cost of their fix.
“The reduction in oil consumtion (85 million to 83 million per day) does not equate to a move of $140 to $40. If it did would we not see 70% less cars on the road?”
Oil consumption is highly inelastic, there’s not a linear relationship between price and demand. While you have your job or your business is still operating you will pay whatever you need to for gas because you can’t operate without it. So as soon as demand exceeds supply the price is quickly bid up. As people start paying more for gas they pay less for other things and various economic activities contract until the demand falls back below supply. On the down side the minimum price of oil is given by the cost of production. For installed capacity the cost of lifting a barrel to the surface can range from $1 (saudi arabia) to $30-40 (deep water crude/oil sands/etc). When oil falls below this price the wells are shut down and supply contracts until prices go back to the point where production is profitable.
A relative who works in the oil biz told me that the cheapest lift cost for new discoveriesthen (3 years ago) was $19 per barrel. The average lift cost will continually rise unless a new technology lowers the cost. Note that does not include exploration, drilling, transportation, refining, etc. Just the cost to lift the oil from down there to up here.
Also apologies for the double post above. The 2nd one is what I wanted.
Very good info, makes sense to me.
west texas sweet is a buy at $35 and below.
time to make some money!